Judge says Dairy Farmers of America has no monopoly

Following a restructuring in July, Kansas City-based Dairy Farmers of America does not have a monopoly on school milk sold in the hills of Kentucky and Tennessee, a federal judge ruled Tuesday.

DFA owns 50 percent stakes in the only two dairy companies serving the area, but it gave up its voting rights in one of the competitors July 14, and thus doesn't control that company's pricing decisions, Chief Judge Karl Forester found in the U.S. District Court in London, Ky.

The U.S. Justice Department and the state of Kentucky had argued in the 2003 antitrust complaint, which was amended in March, that DFA's ownership of half of Southern Belle Dairy Co. LLC and half of Flav-O-Rich recreated the effects of a criminal conspiracy carried out by the two companies from the 1970s to 1989.

Both companies pleaded guilty in 1992 to felony bid-rigging for raising the cost of school milk by agreeing which dairy company would bid lower, the government noted.

From the late 1990s until February 2002, Flav-O-Rich and Southern Belle "competed vigorously" for school milk contracts, the government said.

Through subsidiaries, DFA acquired control of Flav-O-Rich in December 2001 and purchased half of Southern Belle in February 2002, asserting control over both competitors, the government argued.

After a failed attempt to settle the suit, DFA restructured its ownership of Southern Belle, giving full control to co-owner Bob Allen, DFA said in a memorandum filed July 30.

"Now, DFA has only a completely passive, non-voting capital interest in Southern Belle," the memorandum said.

The government maintained that the DFA should divest itself of one dairy company because "DFA has a clear incentive to encourage the dairies to raise prices and not go after each other's customers."

The government also said that both of the co-owners who manage Flav-O-Rich and Southern Belle have long, lucrative relationships with DFA.

"The managers of both dairies are experienced enough to understand that their interests are best served by reducing competition between Southern Belle and Flav-O-Rich," the government said in one of its pleadings.

Representatives of DFA and the Justice Department could not be reached for comment.